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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 2000.
Commission File Number 0-24699
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BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 62-1742957
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Kendall Square, Building 200, Suite 223
Cambridge, Massachusetts 02139
(Address of principal executive offices)
(617) 577-8020
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ].
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date: 12,324,260 shares of common
stock, $.01 par value, at May 5, 2000.
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FORM 10-Q
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
A. Consolidated Condensed Balance Sheets at March 31,
2000 and December 31, 1999 (Unaudited) 3
B. Consolidated Statements of Operations for the Three
Months ended March 31, 2000 and 1999 (Unaudited) 4
C. Consolidated Statements of Cash Flows for the Three
Months ended March 31, 2000 and 1999 (Unaudited) 5
D. Notes to Consolidated Financial Statements (Unaudited) 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk 12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 13
ITEM 2. Changes in Securities and Use of Proceeds 13
ITEM 3. Defaults Upon Senior Securities 13
ITEM 4. Submission of Matters to a Vote of Security Holders 13
ITEM 5. Other information 13
ITEM 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBIT INDEX 15
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Bright Horizons Family Solutions, Inc.
Consolidated Condensed Balance Sheets
(in thousands except share data)
(Unaudited)
March 31, December 31,
2000 1999
ASSETS
Current Assets:
Cash and cash equivalents $ 10,531 $ 12,752
Accounts receivable, net 18,304 17,858
Prepaid expenses and other current assets 2,325 2,251
Current deferred tax asset 4,966 4,966
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Total current assets 36,126 37,827
Fixed assets, net 52,329 48,437
Goodwill and other intangible assets, net 21,280 15,909
Non-current deferred tax asset 4,192 4,192
Other assets 866 708
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Total assets $ 114,793 $ 107,073
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
obligations under capital leases $ 172 $ 172
Accounts payable and accrued expenses 20,431 23,017
Deferred revenue, current portion 11,922 9,462
Income tax payable 733 780
Other current liabilities 943 1,054
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Total current liabilities 34,201 34,485
Long-term debt and obligations under
capital leases, net of current portion 511 515
Accrued rent 1,348 1,400
Other long-term liabilities 8,064 2,692
Deferred revenue, net of current portion 6,011 5,695
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Total liabilities 50,135 44,787
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Stockholders' equity:
Common Stock $.01 par value
Authorized: 30,000,000 shares
Issued: 12,321,000 and 12,310,000 shares March 31,
2000 and December 31, 1999, respectively
Outstanding: 11,826,000 and 11,815,000 at March 31,
2000 and December 31, 1999, respectively 123 123
Additional paid in capital 75,701 75,641
Treasury stock, 495,000 shares at cost (7,081) (7,081)
Accumulated deficit (4,085) (6,397)
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Total stockholders' equity 64,658 62,286
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Total liabilities and stockholders' equity $ 114,793 $ 107,073
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The accompanying notes are an integral part of the
consolidated financial statements
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Bright Horizons Family Solutions, Inc.
Consolidated Statements of Operations
(in thousands except per share data)
(Unaudited)
Three months ended March 31,
2000 1999
Revenues $66,622 $58,461
Cost of services 56,840 50,087
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Gross profit 9,782 8,374
Selling, general and administrative 5,543 5,127
Amortization 362 229
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Income from operations 3,877 3,018
Net interest income 75 211
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Income before tax 3,952 3,229
Income tax provision 1,640 1,324
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Net income $ 2,312 $ 1,905
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Earnings per share - basic $ 0.20 $ 0.16
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Weighted average shares - basic 11,820 11,785
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Earnings per share - diluted $ 0.19 $ 0.15
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Weighted average shares - diluted 12,322 12,737
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The accompanying notes are an integral part of the
consolidated financial statements
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Bright Horizons Family Solutions, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Three months ended March 31,
2000 1999
Net income $ 2,312 $ 1,905
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,588 1,032
Loss on disposal of fixed assets 23 18
Changes in assets and liabilities:
Accounts receivable (446) (2,755)
Income taxes receivable -- 980
Prepaid expenses and other current assets (74) 301
Accounts payable and accrued expenses (2,586) (1,404)
Income taxes payable (47) --
Deferred revenue 2,776 2,092
Accrued rent (52) (41)
Other long-term assets (158) 104
Other current and long-term liabilities (139) 254
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Net cash provided by operating activities 3,197 2,486
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Cash flows from investing activities:
Additions to fixed assets, net of acquired amounts (4,762) (2,807)
Proceeds from disposal of fixed assets -- 15
Increase in other assets -- (400)
Payments for acquisitions (713) (587)
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Net cash used for investing activities (5,475) (3,779)
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Cash flows from financing activities:
Proceeds from issuance of common stock 61 3,588
Principal payments of long term debt and
obligations under capital leases (4) (498)
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Net cash provided by financing activities 57 3,090
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Net (decrease) increase in cash and cash equivalents (2,221) 1,797
Cash and cash equivalents, beginning of period 12,752 20,439
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Cash and cash equivalents, end of period $ 10,531 $ 22,236
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Non-cash financing activities:
Assumption of liability for acquisition 5,400 --
Tax benefit related to stock option exercises -- 2,221
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Non-cash financing activities $ 5,400 $ 2,211
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Supplemental cash flow information:
Cash payments for interest $ 23 $ 34
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Cash payments for income taxes $ 1,691 $ 352
======== ========
The accompanying notes are an integral part of the
consolidated financial statements
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ITEM 1.D. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The Company and Basis of Presentation
ORGANIZATION -- Bright Horizons Family Solutions, Inc. (the "Company") was
incorporated under the laws of the state of Delaware on April 27, 1998 and
commenced substantive operations upon the completion of the merger by and
between Bright Horizons, Inc. ("BRHZ") and CorporateFamily Solutions, Inc.
("CFAM") on July 24, 1998 (the "Merger"). The Company provides workplace
services for employers and families including childcare, early education
and strategic worklife consulting throughout the United States.
The Company operates its family centers under various types of
arrangements, which generally can be classified in two forms: (i) the
sponsor model, where the Company operates a family center on or near the
premises of a sponsor and gives priority enrollment to the sponsor's
employees and (ii) the management contract model, where the Company manages
a work-site family center under a cost-plus arrangement, typically for a
single employer. The Company receives tuition revenue from parents, and
management fees and operating subsidies from corporate sponsors for its
childcare services.
BASIS OF PRESENTATION -- The accompanying financial statements have been
prepared by the Company in accordance with the accounting policies
described in the Company's audited financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999,
and should be read in conjunction with the notes thereto.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements contain all adjustments which are
necessary to present fairly its financial position as of March 31, 2000 and
the results of its operations and cash flows for the three-month periods
ended March 31, 2000 and 1999, and are of a normal and recurring nature.
The results of operations for interim periods are not necessarily
indicative of the operating results to be expected for the full year.
NEW PRONOUNCEMENTS -- The Company will be required to adopt the provisions
of Statement of Financial Accounting Standards No.133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), which
establishes accounting and reporting standards for derivative instruments
and hedging activities. SFAS 133, as amended by Statement of Accounting
Standards No. 137, will require the Company to recognize all derivatives as
either assets or liabilities in the statement of financial position and to
measure those instruments at fair value. The accounting for gains and
losses from changes in the fair value of a particular derivative will
depend on the
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intended use of the derivative. The standard will be effective for the
Company's financial reporting beginning in the first quarter of fiscal
2001. The Company does not expect the adoption of SFAS 133 to have a
material impact on the Company's results of operations, financial condition
or cash flows.
In December 1999, the American Institute of Certified Public Accountants
(AICPA) issued Staff Accounting Bulletin (SAB) 101 to clarify the
accounting rules on revenue recognition and to provide more specific
guidance on existing broad revenue recognition rules. The Company will be
required to adopt this new framework beginning in the quarter ending June
30, 2000. The company does not expect the adoption of this bulletin to have
a material effect on the Company's results of operations, financial
condition or cash flows.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of Accounting Principles Board (APB)
Opinion No. 25." This interpretation provides guidance on the application
of APB Opinion No. 25 including (1) the definition of an employee, (2) the
criteria for determining whether a plan qualifies as a noncompensatory
plan, (3) the accounting consequence of various modifications to the terms
of a previously fixed stock option or award and (4) the accounting for an
exchange of stock compensation awards in a business combination. The
Interpretation is effective July 1, 2000 and the effects of applying the
Interpretation are recognized on a prospective basis. The Company does not
expect the adoption of this Interpretation to have a material impact on the
Company's results of operations, financial condition or cash flows.
RECLASSIFICATIONS -- Certain amounts in the prior year financial statements
have been reclassified to conform with the current year's presentation.
2. Line of Credit
The Company entered into a $40.0 million unsecured line of credit for
working capital, acquisition financing and general corporate purposes with
two banks effective March 30, 2000. The credit facility consists of a
revolving line of credit, which expires on June 30, 2002, at which time any
outstanding indebtedness will be converted into a three-year term loan. At
the Company's option, the line of credit will bear interest at either i)
Prime, or ii) LIBOR plus a spread based on debt levels and coverage ratios.
The agreement requires the Company to comply with certain covenants, which
include, among other things, the maintenance of specified financial ratios,
and prohibits the payment of dividends without bank approval. No amounts
have been advanced under the facility as of March 31, 2000. This facility
replaces the line of credit facility that the Company had in place at
December 31, 1999.
3. Earnings Per Share
Earnings per share has been calculated in accordance with Statement of
Financial Accounting Standards No. 128 "Earnings per Share", ("SFAS 128"),
which established standards for computing and presenting earnings per
share. The computation of net earnings per share is based on the weighted
average number of common shares and
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common equivalent shares outstanding during the period. For the
three-month periods ended March 31, 2000 and 1999, the Company had no
warrants or preferred stock outstanding.
The following tables present information necessary to calculate earnings
per share:
Three months Ended March 31, 2000
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Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic earnings per share:
Income available to common stockholders $ 2,312,000 11,820,000 $ 0.20
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Effect of dilutive securities:
Stock options -- 502,000
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Diluted earnings per share $ 2,312,000 12,322,000 $ 0.19
=========== ========== ======
Three months Ended March 31, 1999
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Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic earnings per share:
Income available to common stockholders $ 1,905,000 11,785,000 $ 0.16
======
Effect of dilutive securities:
Stock options -- 952,000
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Diluted earnings per share $ 1,905,000 12,737,000 $ 0.15
=========== ========== ======
In the three months ended March 31, 2000 and 1999 the weighted average
number of stock options excluded from the above calculation of earnings per
share was approximately 548,000 and 3,000, respectively, as they were
anti-dilutive.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Form 10-Q contains certain forward-looking statements regarding, among
other things, the anticipated financial and operating results of the
Company. Investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release any modifications or
revisions to these forward-looking statements to reflect events or
circumstances occurring after the date hereof or to reflect the occurrence
of unanticipated events. In connection with the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995, the Company cautions
investors that future financial and operating results may differ materially
from those projected in forward-looking statements made by, or on behalf
of, the Company. Such forward-looking statements involve known and unknown
risks, uncertainties, and other factors that may cause the actual results,
performance, or achievements of the Company to be materially different from
any future results, performance, or achievements expressed or implied by
such forward-looking statements. See "Risk Factors" included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999
and incorporated herein by reference for a description of a number of risks
and uncertainties which could affect actual results.
General
The Company provides workplace services for employers and families,
including childcare, early education and strategic worklife consulting,
operating 309 child development centers at March 31, 2000. During the three
month period ending March 31, 2000 the Company opened 11 new family
centers, and closed 2 family centers which were not meeting operating
objectives and/or were transitioned to other providers. The Company has the
capacity to serve more than 37,000 children in 35 states and the District
of Columbia and has partnerships with many of the nation's leading
employers, including 75 Fortune 500 companies. Working Mother's 1999 list
of the "100 Best Companies for Working Mothers" includes 45 clients of the
Company. Historical revenue growth has primarily resulted from the addition
of new family centers as well as increased enrollment at existing family
centers. The Company reports its operating results on a calendar year
basis.
The Company's business is subject to seasonal and quarterly fluctuations.
Demand for child care and early education services has historically
decreased during the summer months. During this season, families are often
on vacation or have alternative child care arrangements. Demand for the
Company's services generally increases in September upon the beginning of
the new school year and remains relatively stable throughout the remainder
of the school year. Results of operations may also fluctuate from quarter
to quarter as a result of, among other things, the performance of existing
centers, the number and timing of new center openings and/or acquisitions,
the length of time required for new centers to achieve profitability,
center closings, refurbishment or relocation, the sponsorship model mix of
new and existing centers, the timing and level of sponsorship payments,
competitive factors and general economic conditions.
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RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of revenue for the three-month periods ended March 31, 2000 and
1999:
Three Months Ended
March 31,
2000 1999
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Revenue 100.0% 100.0%
Cost of services 85.3 85.7
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Gross profit 14.7 14.3
Selling, general & administrative 8.3 8.8
Amortization 0.6 0.4
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Income from operations 5.8 5.1
Net interest income 0.1 0.4
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Income before income taxes 5.9 5.5
Income tax provision 2.4 2.2
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Net income 3.5% 3.3%
===== =====
Three Months Ended March 31, 2000 Compared to the Three Months Ended
March 31, 1999
Revenue. Revenue increased $8.1 million, or 14.0%, to $66.6 million for the
three months ended March 31, 2000 from $58.5 million for the three months
ended March 31, 1999. The growth in revenues is primarily attributable to
the net addition of 25 family centers since March 31, 1999, modest growth
in the existing base of family centers and tuition increases at existing
centers of approximately 3% to 5%.
Gross Profit. Cost of services consists of center operating expenses,
including payroll and benefits for center personnel, facilities costs which
includes depreciation, supplies and other expenses incurred at the center
level. Gross profit increased $1.4 million, or 16.8%, to $9.8 million for
the three months ended March 31, 2000 from $8.4 million for the three
months ended March 31, 1999. As a percentage of revenue, gross profit
increased to 14.7% for the three months ended March 31, 2000 compared to
14.3% for the same period in 1999.
The Company showed a modest increase in gross profit margins for the
three-month period ended March 31, 2000 compared to the three-month period
ended March 31, 1999 as a result of a greater proportion of centers
achieving mature operating levels and due to the closure of underperforming
centers over the past 24 months which had substantially lower center
margins on average. The Company also experienced stronger operating
performance in newer family centers that have been open less
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than two years, as compared to family centers open less than two years in
the same period in 1999, while maintaining operating margins at centers
open more than two years.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist of regional and district management
personnel, corporate management and administrative functions, and
development expenses for new and existing centers. Selling, general and
administrative expenses increased $416,000, or 8.1%, to $5.5 million for
the three months ended March 31, 2000 from $5.1 million for the three
months ended March 31, 1999. As a percentage of revenue, selling, general
and administrative expenses decreased to 8.3% for the three months ended
March 31, 2000 from 8.8% for the same 1999 period.
The decrease in selling, general and administrative expenses as a
percentage of revenue during the first three months of this year is
primarily attributable to a larger revenue base and increased efficiencies.
The dollar increase is primarily attributable to investments in regional
and divisional management, sales personnel, and general corporate and
administrative personnel necessary to support long term growth.
Income from Operations. Income from operations totaled $3.9 million for the
three months ended March 31, 2000, an increase of $859,000, or 28.5%, from
$3.0 million in the same 1999 period.
Net Interest Income. Net interest income of approximately $75,000 for the
three months ended March 31, 2000 decreased $136,000 from $211,000 of net
interest income for the three months ended March 31, 1999. The decrease in
interest income is attributable to lower levels of invested cash from the
same period in 1999.
Income Taxes Provision. The Company's effective income tax rate was
approximately 41.5% for the three months ended March 31, 2000 compared to
41.0% for the three months ended March 31, 1999. Management expects the
increase in the tax rate from the prior period to remain in effect
throughout 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are the ongoing operations of its
existing centers and the addition of new centers through development or
acquisition. The Company's primary sources of liquidity have been existing
cash balances and cash flow from operations, supplemented by borrowing
capacity under the Company's revolving line of credit. The Company had
working capital of $1.9 million and $3.3 million as of March 31, 2000 and
December 31, 1999, respectively.
Cash provided from operations increased to $3.2 million for the three
months ended March 31, 2000, from $2.5 million for the three months ended
March 31, 1999. The increase in cash provided by operations is the result
of a smaller overall net increase in accounts receivable than in the three
months ended March 31, 1999. Increases in net income before depreciation
and amortization, and deferred revenue also
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contributed to the increase in cash flow provided by operations. These
amounts were offset by a larger decrease in accounts payable and accrued
expenses, net of acquired amounts, in the three months ended March 31,
2000, as compared to the period ended March 31, 1999, and is primarily
attributable to a reduction of accrued payroll costs from year end. In
addition, the Company was subject to increased cash expenditures for
income taxes in the period ended March 31, 2000.
Cash used for investing activities increased to $5.5 million for the three
months ended March 31, 2000 from $3.8 million for the three months ended
March 31, 1999. The increase was primarily the result of capital
expenditures for the addition of fixed assets. Of the $4.8 million of fixed
asset additions for the three months ended March 31, 2000, approximately
$3.7 million relates to new family centers, with the remaining balance
being primarily utilized for the refurbishment and expansion of existing
family centers. Management expects the current level of center related
fixed asset spending to remain the same for the remainder of 2000.
Cash provided by financing activities decreased to $57,000 for the three
months ended March 31, 2000, from $3.1 million for the three months ended
March 31, 1999. During the three months ended March 31, 2000, the Company
received $61,000 in net proceeds from the issuance of Common Stock
associated with the exercise of stock options, as compared to $3.6 million
in the same period in 1999.
On March 30, 2000 the Company entered into a $40.0 million credit facility
with two banks which is available to fund working capital and general
corporate purposes, which may include the financing of potential
acquisitions and new centers under development. No amounts have been
advanced under the facility as of March 31, 2000.
Management believes that funds provided by operations and the Company's
existing cash and cash equivalent balances and borrowings available under
the line of credit will be adequate to meet planned operating and capital
expenditure needs for at least the next 18 months. However, if the Company
were to make any significant acquisitions or make significant investments
in the purchase of facilities for new or existing centers for corporate
sponsors, it may be necessary for the Company to obtain additional debt or
equity financing. There can be no assurance that the Company would be able
to obtain such financing on reasonable terms, if at all.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's investment strategies,
types of financial instruments held or the risks associated with such
instruments which would materially alter the market risk disclosures made
in the Company's Annual Report on Form 10-K for the year ended December 31,
1999.
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PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings:
Not Applicable
ITEM 2. Changes in Securities and Use of Proceeds:
Not applicable
ITEM 3. Defaults Upon Senior Securities:
None
ITEM 4. Submission of Matters to a Vote of Security Holders:
None
ITEM 5. Other information:
Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit 10.1 - Credit Agreement, dated as of March 30,
2000, among Bright Horizons Family Solutions, Inc. as
Borrower, the Lenders party thereto, and Fleet National
Bank, as Agent for the Lenders (certain schedules and
exhibits to this document are omitted from this filing,
and the Registrant agrees to furnish supplementally a copy
of any omitted schedule or exhibit to the SEC upon
request).
Exhibit 10.2 - Revolving Credit Note, dated March 30,
2000, payable to the Bank of America, N.A. in the
principal amount of $15,000,000.
Exhibit 10.3 - Revolving Credit Note, dated March 30,
2000, payable to the Fleet National Bank in the principal
amount of $25,000,000.
Exhibit 27 (for SEC use only)
(b) Reports on Form 8-K:
None
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized:
Date: May 12, 2000
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
By: /s/ Elizabeth J. Boland
----------------------------------------
Elizabeth J. Boland
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
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EXHIBIT INDEX
10.1 Credit Agreement, dated as of March 30, 2000, among Bright Horizons
Family Solutions, Inc. as Borrower, the Lenders party thereto, and
Fleet National Bank, as Agent for the Lenders (certain schedules and
exhibits to this document are omitted from this filing, and the
Registrant agrees to furnish supplementally a copy of any omitted
schedule or exhibit to the SEC upon request).
10.2 Revolving Credit Note, dated March 30, 2000, payable to Bank of
America, N.A. in the principal amount of $15,000,000.
10.3 Revolving Credit Note, dated March 30, 2000, payable to Fleet National
Bank in the principal amount of $25,000,000.
27 Financial Data Schedule (for Commission use only)
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